Accredited investors: Rules and requirements

What is an accredited investor?

An accredited investor is an individual or an entity that the U.S. Securities and Exchange Commission (SEC) permits to invest in securities that are not required to be registered with the SEC. These securities include investment opportunities in the private markets, which include stakes in private investment funds, venture capital (VC) funds, private equity (PE) funds, hedge funds, private placements, and startups. (They are also known as exempt offerings; because unregistered securities could be illegal for anyone to invest in if they aren’t sold pursuant to a valid exemption, this designation is critical for market access.)

Because most private securities offerings are restricted to this group, understanding the accredited investor definition is fundamental for any fund manager. The accredited investor designation is intended to ensure that individuals investing in unregistered securities have enough financial expertise to assess the risks and benefits of an investment, or sufficient wealth to absorb potential losses.

For you as a fund manager, properly identifying and verifying accredited investors is a key compliance responsibility when raising capital.

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What are the accredited investor requirements?

To protect investors from the unique risks of the private markets, the SEC establishes specific criteria for who can be considered an accredited investor. These requirements are officially outlined in Rule 501 of Regulation D under the Securities Act.

The responsibility, or burden, falls on you as the fund manager and issuer of the securities. For offerings under Rule 506(c), you must take reasonable steps to verify that your investors, called limited partners (LP), meet these standards. However, under Rule 506(b), investors are generally permitted to self-certify their status. This requirement is particularly stringent for offerings under Rule 506(c).

Requirements for individuals

An individual, also known as a natural person, can qualify as an accredited investor by meeting specific financial thresholds or by demonstrating professional knowledge and experience. It is important to note that these knowledge-based paths currently remain narrow categories. This means you don’t have to be wealthy to qualify if you have the right credentials, though the majority of investors still qualify via wealth.

There are four main ways for an individual to qualify:

• Income: You must have an annual income exceeding $200,000 (individually) or $300,000 (joint income with spouse or spousal equivalent) for the last two years, with a reasonable expectation of earning the same or more in the current year.

• Net worth: Your individual net worth or joint net worth with a spouse must exceed $1 million. It is important to know that the value of your primary residence is not included when calculating this net worth.

• Professional experience: Certain professional roles automatically grant you accredited status because the SEC assumes you have a high degree of financial sophistication. If you are a director, executive officer, or general partner (GP) of the fund or company issuing the securities, the SEC considers you an accredited investor. This also applies to knowledgeable employees of a private fund.

• Professional licenses: You can also qualify by holding certain professional licenses in good standing. This path recognizes your financial expertise, independent of your personal wealth or income. The licenses that currently qualify an individual include the Series 7, Series 65, and Series 82 licenses.

Requirements for institutions and entities

Many LPs in private funds are not individuals but entities like corporations, trusts, or other funds. For an institution, accreditation is determined by institution type and the amount of assets the institution has under management. These institutions can also qualify as accredited investors, and they have their own set of criteria to meet. Examples of accredited institutions include:

• Entities with more than $5 million in total assets, including corporations, partnerships, limited liability companies (LLC), trusts, charitable organizations, family offices, and employee benefit plans

• Certain financial entities, including banks, insurance companies, registered investment companies, and business development companies

• SEC-registered broker-dealers, investment advisers that are registered with the SEC or a state, and exempt reporting advisers

• An entity owned by accredited investors

The rest of the required accredited investor status qualifications for individuals and institutions can be found on the SEC’s website.

Non-accredited investor

A non-accredited investor (or unaccredited investor) is anyone who doesn’t meet the definition of an accredited investor described above. Non-accredited investors can invest in public company stock (traded on public stock exchanges), as well as other publicly available assets like bonds, real estate, and art.

Non-accredited investors are also able to invest in private businesses, but these opportunities are limited and subject to other requirements, such as additional disclosures related to the investment.

Accredited investors vs. qualified purchasers

Federal U.S. securities law restricts most private market investments to two categories of investors: accredited investors and qualified purchasers.

• Accredited investors have to meet income and wealth thresholds set by the SEC, or hold certain finance-sector certifications. Examples of accredited investors are individuals, institutional investors, family offices and its family clients, investment advisors, trusts, and other financial entities.

• Qualified purchasers are individuals or entities with at least $5 million in investments.

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How to become an accredited investor

To become an accredited investor, you must meet the individual or institutional eligibility requirements, gather relevant documents, and verify your status before you begin investing in the private market.

1. Meet the accredited investor criteria: Individuals and entities must first meet the financial or professional certification requirements (see above).

2. Gather the required documentation: To prove your status, you will need financial statements or professional records.

   1. Income qualification: Tax returns, W-2 forms, pay stubs, K-1 statements, and business tax filings.

   2. Net worth qualification: Bank statements, brokerage account statements, retirement account statements, liability statements, and real estate appraisals.

   3. Professional certification qualification: Financial licenses including Series 7, Series 65, or Series 82 from FINRA, or an employment verification letter if qualifying as a knowledgeable employee at a private fund.

3. Verify accredited investor status: After gathering your records, choose one of the following verification methods.

   1. Third-party verification: Verification service providers, Registered Investment Advisers (RIA), licensed attorneys, Certified Public Accountants (CPA).

   2. Investment firm verification: Private funds may have their own due diligence process to verify your accredited status.

Why do the accredited investor rules exist?

The accredited investor rules are a cornerstone of investor protection in the private markets. To understand why they exist, it helps to compare public and private investments.

Companies that offer securities to the public, like stocks you can buy on the New York Stock Exchange, must go through a rigorous registration process and provide extensive, regular disclosures. This gives the public a transparent view of their performance, financial health, and risks. As an investor, you can use these disclosures to inform your decisions. In other words, public markets are transparent and liquid.

Private market investments, however, are fundamentally different. These investments are generally illiquid, which means they cannot be easily sold or converted to cash. They also lack the broad transparency and reporting required of public companies.For investors who don’t have special insight into a company or industry, this can be a disadvantage. In addition, private investments are illiquid, which means that investors can’t easily sell them to cover other liabilities. This lack of liquidity may pose additional risk to investors who don’t have sufficient cash reserves for unexpected expenses.

For these reasons, the SEC restricts investment in certain private securities to accredited investors. The framework assumes that accredited investors possess the financial knowledge to evaluate the merits and risks of these opaque investments on their own, with the legal standard requiring that they be able to fend for themselves and have access to the kind of information that registration would otherwise provide—both by having access to information and being able to withstand risk of loss.

While the accredited investor designation is framed around risk of loss, the verification process is primarily a critical compliance safeguard for fund managers. Investment failure is a common outcome even in successful venture markets, and this risk isn't unique to private assets—retail investors face similar risks in crypto or gambling. For a fund manager, however, the primary risk is the legal consequence of failing to verify an unregistered offering. Verification ensures you are meeting the strict limits required to remain competitive and compliant while raising capital.

How fund managers verify accredited investor status

For fund CFOs and emerging managers, the traditional process of accredited investor verification can be a significant operational burden. However, this manual collection of highly sensitive documents like tax returns, bank statements, and brokerage account information is typically only required for offerings under Rule 506(c). Under the more common Rule 506(b), managers can generally rely on an investor’s self-certification, provided they have no reason to doubt the information.

According to Carta data, even smaller funds with $1 million to $10 million in assets under management (AUM) have a median of 26 LPs—each of whom must be verified according to the specific rule chosen.

Chasing these documents over insecure email threads is not only slow and inefficient but also creates a poor first impression for new LPs. This manual approach introduces unnecessary risk and friction into the fundraising process, a time when building trust and momentum is paramount. Transitioning to platform-based verification helps mitigate these specific security and efficiency risks by centralizing sensitive data and standardizing the investor onboarding experience.

For firms focused on growth, a manual approach simply doesn't scale. As QED Investors found, leveraging technology is key to keeping up with an expanding portfolio. When the firm needed a fund administrator, its leadership "turned to Carta for its innovative technology and potential to scale with the firm’s growing needs," according to CFO Jamie Loving.

A modern, platform-based approach transforms this critical step. With Carta Closings, you can provide a secure, centralized platform where LPs complete subscription documents and verification. This gives you a professional and efficient way to onboard investors, meet fundraising goals faster, and seamlessly integrate know your customer (KYC) and anti-money laundering (AML) screening from a single source of truth.

What are the risks of non-compliance?

Failing to comply with accredited investor rules carries severe consequences that can affect your fund's viability and your reputation as a manager. These risks go far beyond simple administrative errors; they can undermine the legal foundation of your fund's investments.

One of the most significant risks is granting rescission rights. If you sell securities to an investor who is later found to be non-accredited, that investor may have the legal right to have the sale rescinded. This could force your fund to unwind the investment and return the capital, potentially at a very inopportune time and regardless of the investment's performance.

Beyond rescission, other major risks include:

• SEC enforcement actions: The SEC can bring actions against funds and their managers for violating securities laws. These actions can lead to significant financial penalties and sanctions.

• Loss of exemption: A single compliance failure could jeopardize your fund's ability to rely on important offering exemptions, like Regulation D, for its entire fundraising round. This could put all of your capital at risk.

• Reputational damage: A public compliance failure can severely damage your firm's reputation. In the close-knit world of private capital, word travels fast, and such an event could make it difficult to raise future funds and attract high-quality LPs.

For firms like SageView Advisory Group, which faced a newly complex equity structure after a major investment, improving compliance was a top priority. Partnering with a platform that could streamline these processes was essential to managing their obligations effectively and mitigating risk.

How have the accredited investor rules changed?

The SEC originally established the accreditation criteria as a response to the Great Depression, and the concept dates back to the Securities Act of 1933. The last substantial refresh of those rules occurred in 1982, when private funds were relatively new types of assets and represented a much smaller fraction of the U.S. economy than they do today.

For nearly four decades, the SEC used only two criteria to determine who qualifies as an accredited investor: either income level or net worth. Those financial thresholds have remained unchanged despite inflation. With the exception of a provision in the 2010 Dodd-Frank Act that excludes an investor’s primary residence from their individual net worth, not much has changed since 1982—until recently.

In 2020, the SEC broadened access to private investments by recognizing criteria based on financial experience and sophistication.

What is the future of the accredited investor rule?

The accredited investor definition is not set in stone. It is a topic of ongoing debate among policymakers, regulators, and industry participants, with different viewpoints on how to best balance investor protection with capital formation.

On one side of the conversation, some policymakers are considering raising the income and net worth thresholds. The argument is that the current financial levels have not been adjusted for inflation in many years and may no longer represent the level of financial security the rule originally intended.

On the other side, many in Congress and the industry are working to expand the definition of an accredited investor.

The SEC

The SEC has the authority to set the definition for accredited investors.

As of 2026, the current view of the SEC is to expand capital formation, including broadening the definition for accredited investors. In a statement outlining the SEC’s Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, SEC Chairman Paul S. Atkins noted that a key theme of the SEC’s updated deregulatory agenda is to “reduce compliance burdens and facilitate capital formation, including by simplifying pathways for raising capital and investor access to private businesses.”

Congress

Congress is actively working to expand these pathways through legislation like the INVEST Act. There is significant bipartisan interest in finding new onramps to accredited status, such as requiring FINRA or the SEC to develop a formal certification test.

As Holli Heiles Pandol, senior counsel and head of policy at Carta, notes during Carta’s Policy Implications for the Private Market Ecosystem webinar, there is bipartisan interest in finding new pathways to accredited status: “We've seen efforts to require FINRA or the SEC to develop a test. So if you're willing to do the work, study, and understand the basics of investing in the private markets as well as some of the risks there, you can test in if you don't come from means or [are not] independently wealthy.” This legislative push aims to shift the definition from a wealth-based gate to a knowledge-based credential.

Maintain accredited investor compliance with Carta

Navigating these potential changes requires a partner who is deeply engaged in policy conversations and can help you stay ahead of regulatory shifts. As the private markets evolve, the rules that govern them will continue to adapt.

To ensure you can maintain compliance and scale your operations efficiently, request a demo of Carta's fund management platform.

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Frequently asked questions about accredited investors

What is the difference between an accredited investor and a qualified purchaser?

A qualified purchaser is a higher standard of investor sophistication defined by owning a much larger amount of investments. This designation is required for investing in certain types of private funds, known as 3(c)(7) funds.

Can non-accredited investors participate in private offerings?

While some exemptions allow for a very limited number of non-accredited investors, doing so triggers extensive disclosure requirements and adds to regulatory complexity. In practice, most fund managers find the process impractical.

How often must a fund verify an investor's status?

Verification must be done at the time of the investment. It is a best practice to re-verify an investor's status for each new fund they invest in to ensure ongoing compliance with SEC rules.